Airlines
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Industry Overview
The US airline industry includes about 600 companies with combined annual revenue of about $170 billion. Major companies include American (owned by AMR), Delta, and United Continental, as well as the air operations of express delivery companies such as FedEx and UPS. The industry is highly concentrated: the 10 largest companies account for more than 75 percent of industry revenue.
The worldwide airline industry generates about $500 billion annually. Major international companies include Air China, Deutsche Lufthansa, Air France-KLM, Japan Airlines, and British Airways.
Companies in this industry offer scheduled air transportation of passengers and cargo. Nonscheduled transportation is covered in the Charter & Other Nonscheduled Air Transportation Services industry profile.
Competitive Landscape
Airlines depend highly on the health of the economy, which affects air travel by business and consumer passengers. Because many costs are fixed, the profitability of individual companies is determined by efficient operations and on favorable fuel and labor costs. Small airlines can compete by serving local or regional routes.
Products, Operations & Technology
Major services include domestic passenger transportation (about 70 percent of industry revenue) and international passenger transportation (20 percent); mail and freight transportation accounts for most of the remainder. Other revenue comes from providing maintenance, servicing, training, and reservations. Some airlines also offer nonscheduled (charter) flights. Some airlines carry only cargo, using specially equipped planes. Most passenger airlines also provide cargo services.
The basic operations of airlines include acquiring and maintaining airplanes and airport facilities, acquiring passengers and/or freight, managing staff, and operating flights. The flight equipment (airplanes) that an airline uses is crucial to efficient operations. The cost, capacity, and fuel efficiency of airplanes vary substantially. Airbus and Boeing are the dominant manufacturers of commercial jets. Manufacturers of smaller aircraft for regional airlines, with seating capacities of 30 to 90, include Bombardier and Embraer. The largest passenger aircrafts have between 400 and 500 seats, and are used for long flights with a "stage length" of more than 7,000 miles. Large cargo aircraft can hold over 100 tons, with a range of more than 4,000 miles. Major carriers mainly operate planes that hold 120 to 200 passengers.
A large plane like the Boeing 747 consumes 3,500 gallons of fuel per hour, while a midsize one like the Boeing 737 consumes about 800 gallons. Larger planes require a larger crew. The operating cost of an airplane is often expressed in cents per seat mile, with typical values between 10 and 20 cents. Cost per available seat mile is often dependent on maintenance costs and the cost of fuel. The list price for a new Boeing 737-700 is about $70 million. A Boeing 747-8 lists for more than $300 million. The actual price airlines pay for new planes can be substantially lower than the list price, especially if they place big orders. A large market exists for used aircraft, which can have a useful life of 20 years or more.
Airlines lease terminals; ticket counters; gates (sometimes called "slots"); cargo facilities; and maintenance facilities from airports, which are usually owned by local government authorities. In some cases, airlines can sublease their facilities to other airlines. About 500 airports have scheduled airline service in the US. In addition to paying for airport facilities, airlines pay landing fees for each flight, which are based on the number of landing and the weight of the aircraft. Landing fees at major airports are much higher. Landing and other rental fees are typically 5 percent or more of total expenses for large airlines. Routine aircraft maintenance is done at local airports, but the big carriers typically have one or several large central maintenance facilities for major overhauls. Many smaller airlines contract maintenance out to the major carriers. Because of the large number of flight departures, scheduling staff and equipment is a major logistics challenge for airlines. Carriers measure in terms of departures, rather than flights, because a single flight may have several stops.
Airlines measure their performance using a number of metrics. Revenue passenger-miles (RPM) measures the number of paying passengers and the distance flown. Available seat-miles (ASM) measures the number of seats and the distance flown. Load factor, which measures how much of a carrier's capacity is used, is calculated by dividing RPM by ASM.
